Securities and Exchange Commission
Litigation Release No. 17627 / July 24, 2002
Accounting and Auditing Enforcement Release No. 1599 / July 24, 2002
Securities and Exchange Commission v. Adelphia Communications Corporation, John J. Rigas, Timothy J. Rigas, Michael J. Rigas, James P. Rigas, James R. Brown, and Michael C. Mulcahey, 02 Civ. 5776 (KW) (S.D.N.Y.)
The Securities and Exchange Commission today filed suit in the United States District Court for the Southern District of New York charging major cable television provider Adelphia Communications Corporation; its founder John J. Rigas; his three sons, Timothy J. Rigas, Michael J. Rigas, and James P. Rigas; and two senior executives at Adelphia, James R. Brown and Michael C. Mulcahey, in one of the most extensive financial frauds ever to take place at a public company. In its complaint, the Commission charges that Adelphia, at the direction of the individual defendants: (1) fraudulently excluded billions of dollars in liabilities from its consolidated financial statements by hiding them in off-balance sheet affiliates; (2) falsified operations statistics and inflated Adelphia's earnings to meet Wall Street's expectations; and (3) concealed rampant self-dealing by the Rigas Family, including the undisclosed use of corporate funds for Rigas Family stock purchases and the acquisition of luxury condominiums in New York and elsewhere.
The Commission seeks a final judgment ordering the defendants to account for and disgorge all ill-gotten gains including as to the individuals all compensation received during the fraud, all property unlawfully taken from Adelphia through undisclosed related-party transactions, and any severance payments related to their resignations from the company. The Commission also seeks civil penalties from each defendant, and permanent injunctions from violating the securities laws. The Commission further seeks an order barring each of the individual defendants from acting as an officer or director of a public company.
Named in the Complaint are:
Adelphia, a Delaware corporation headquartered in Coudersport, Pennsylvania. Adelphia is the sixth largest cable television provider in the United States and, through various subsidiaries, provides cable television and local telephone service to customers in twenty-nine states and Puerto Rico. Shares of Adelphia stock were listed on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") until June 3, 2002, and are now quoted by the Pink Sheets, LLC. Adelphia filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code on June 25, 2002.
John J. Rigas ("J. Rigas"), a 77 year-old resident of Coudersport, Pennsylvania. J. Rigas founded Adelphia in 1952 and was its CEO and Chairman of Adelphia's Board of Directors until May 15, 2002 when he resigned pursuant to a request by the Special Committee created by Adelphia's Board of Directors.
Timothy J. Rigas ("T. Rigas"), a 46 year-old resident of Coudersport, Pennsylvania and a son of J. Rigas. T. Rigas served as a director of Adelphia, as well as Adelphia's CFO, CAO, and Treasurer until May 16, 2002 when he resigned pursuant to a request by the Special Committee. Between December 1992 and June 2001, T. Rigas was chairman of the Audit Committee of Adelphia's Board of Directors.
Michael J. Rigas ("M. Rigas"), a 48 year-old resident of Coudersport, Pennsylvania and a son of J. Rigas. M. Rigas served as a director of Adelphia, as well as Adelphia's Executive Vice President for Operations and Secretary of Adelphia until May 23, 2002 when he resigned pursuant to a request by the Special Committee.
James P. Rigas ("J.P. Rigas"), a 44 year-old resident of Coudersport, Pennsylvania and a son of J. Rigas. J.P. Rigas served as a director of Adelphia, as well as Adelphia's Executive Vice President for Strategic Planning until May 23, 2002 when he resigned pursuant to a request by the Special Committee.
James R. Brown ("Brown"), a 40 year-old resident of Coudersport, Pennsylvania. Brown was Adelphia's Vice President of Finance until May 19, 2002 when he resigned pursuant to a request by the Special Committee.
Michael C. Mulcahey ("Mulcahey"), a 45 year-old resident of Port Allegheny, Pennsylvania. Mulcahey is Adelphia's Vice President and Assistant Treasurer.
Specifically, the Commission's complaint alleges as follows:
The Commission's complaint alleges that based on the conduct set forth above, the defendants violated the antifraud, periodic reporting, record keeping, and internal controls provisions of the federal securities laws, including Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2.
The Commission's investigation is continuing. The Commission acknowledges the assistance and cooperation by the U.S. Attorney's Office for the Southern District of New York and the U.S. Postal Inspection Service in this matter.